May 1st, 1975. It was a cool Thursday in New York City. The temperature was in the low 50s, and there was a slight breeze in the air. But over on Wall Street, things were beginning to heat up, because on this day—known now as “May Day”—something historic happened: brokers were, for the first time ever, allowed to charge variable commissions.
That’s right: the requirement for fixed-rate commissions was officially a thing of the past. Brokers could charge different fees based on the size of the trade.
This was a game-changer for ordinary everyday investors who’d previously felt priced out of stock market fun, and it also opened the door for a new era of broker competition.
All in all, it was a big day, which is why we celebrate it by having a bunch of girls dance around a really tall wooden pole and wrap it in ribbons.
Related or Semi-related Video
Finance: What is Compensation: Advisory ...2 Views
Finance a la shmoop what are advisory fee limits? well they're basically a
price ceiling above which financial advisors can't go yeah I can't go they [Financial advisors in an elevator and hit price ceiling]
can't touch that ceiling you know like hammer time, can't touch this...
so when you invest in a mutual fund you pay two fees there's a commission
and there's an annual management fee usually based on the assets you have
with them under management like maybe it's one percent on the first hundred [Asset rises]
grand that you have and then half a percent above a million or whatever
but there is a third and insidious fee element in the world called advisory
fees like how do you choose which fund to buy well if you have a financial
advisor they'll walk you through the lists of mutual funds out there and [Ice cream flavors appear]
index funds and all other set of funds as well well they're like a gazillion of
them and then that advisor will charge you for their time in some form right
someone's got to pay for their beach house well if you start adding up all
the fees you're paying for arguably no better performance than had you just [Itemized list of fees appear]
logged onto schwab.com or fidelity.com and bought an index fund hmm
well then you're gonna start to pause here it starts to be a big number in
those fees that eat meaningfully into your investment returns most buyers of [Pacman fees eating up money]
mutual funds are not financial gurus yeah not like that they're doctors and
lawyers and plumbing parts distributors and they really don't have a
sophisticated understanding of just how badly they could get taken by
unscrupulous financial advisors so the industry placed a series of structured
limits to keep the non gurus safe from the financial predators when it comes to
compensation and fee limits you know on advisory services and predators like [Tiger walking by]
this guy
Up Next
What makes a fair market...fair? A fair market is one where participants on both the buy and sell side are knowledgeable as to what price other buy...